The perfect storm: When the yen strengthens and Bitcoin retreats

Last week brought a significant correction in the cryptocurrency markets, which was not a coincidence but the result of a confluence of perfectly aligned macroeconomic factors. Bitcoin fell to around $90.48K, while Ethereum lost ground dropping below $3.03K. Blockchain-related stocks followed a similar path: mining companies like CLSK, HUT, and WULF experienced declines of over 10%, while financial service platforms recorded drops between 5% and 7%.

What happens in Tokyo regarding the value of one yen in international markets has more impact than many imagine on the crypto ecosystem.

The factor that changed everything: Japanese monetary policy

The move that few people correctly anticipated was the change in direction of the Bank of Japan regarding its interest rates. Historically, whenever the Japanese monetary authority decides to raise its borrowing costs, the Bitcoin market experiences significant turbulence of 20% to 30% over the next 4 to 6 months.

Historical data is conclusive: after the rate hike in March 2024, Bitcoin retreated approximately 27%. The July increase of the same year caused a 30% drop, and the January 2025 hike led to another similar decline. This new decision marks the first rate increase by the Bank of Japan since January, with market forecasts indicating a 97% probability of a 25 basis point hike.

Why does what happens in Japan matter so much? Because the Asian country is the largest foreign buyer of U.S. Treasury bonds, with holdings exceeding $1.1 trillion. Its influence on the global dollar supply, bond yields, and risk assets like Bitcoin is considerably greater than many traders recognize.

For years, the “carry trade” strategy has been fundamental in global markets. Investors borrowed yen at very low rates and invested in U.S. stocks, bonds, or high-yield cryptocurrencies. When Japan begins to raise its rates, these leveraged positions quickly unravel, causing cascading forced liquidations.

The global outlook: Divergence of monetary policies

Simultaneously, the Federal Reserve faced its own dilemma. After completing its first rate cut the previous week, the market remains uncertain about how many more cuts to expect in 2026. Critical macroeconomic data this week — the U.S. non-farm payroll report and inflation data — are central to determining the next U.S. monetary policy move.

The current situation presents a perplexing paradox: if employment cools too quickly, the Fed might pause its cuts out of fear of an economic slowdown. Conversely, if inflation rebounds, the institution could seek to accelerate its balance sheet reduction to withdraw liquidity, achieving a “real” tightening even if it maintains “nominal” easing.

The interest rate futures market (Polymarket) reflects this uncertainty precisely: 78% probability of no change on January 28, versus just 22% chance of a cut. Meanwhile, the European Central Bank and the Bank of England also held meetings but adopted a more cautious stance. This fragmentation of monetary policies — Japan tightening, the U.S. hesitant, Europe and the UK waiting — creates a disjointed liquidity environment that has historically been more damaging to Bitcoin than a clear tightening.

On-chain selling: Institutions, miners, and long-term holders

On the blockchain level, indicators reflected sustained selling pressure. Bitcoin spot ETFs experienced a net outflow of approximately $350 millions in a single day (around 4,000 BTC), mainly from FBTC and GBTC. Meanwhile, on December 15, net flows to exchanges reached 3,764 BTC (close to $340 millions), marking a record high. Binance alone received 2,285 BTC, a clear sign that major holders were preparing to reduce positions.

Market maker behavior also caught the attention of analytical markets. Wintermute transferred over $1.5 trillion in assets to exchanges since late November, fueling the perception of immediate selling pressure.

However, the most concerning signal came from the so-called “OGs” — long-term holders who haven’t moved their Bitcoin in years. Glassnode data indicated that these long-term investors accelerated their sales since late November. Simultaneously, the total Bitcoin hashrate experienced a 17.25% drop over a week, falling to 988.49 EH/s according to F2Pool.

This reduction in computational power correlates with reports of mining shutdowns, particularly in regions like Xinjiang. Estimates suggest that at least 400,000 Bitcoin mining machines were recently deactivated, reducing demand pressure for new supply in the market.

Confluence of factors: The full picture

The decline was not caused by a single event but by the simultaneous convergence of multiple pressures:

The Bank of Japan initiating a cycle of monetary tightening, triggering the unwinding of the carry trade with yen. The Federal Reserve leaving its policy path unclear for 2026, forcing the market to proactively adjust its liquidity expectations. The accelerated on-chain selling behavior by institutions, miners, and large long-term holders, amplifying the price sensitivity to any change in global liquidity.

The real risk may not be this isolated rate hike but the signal it sends for 2026. The Bank of Japan has confirmed plans to sell approximately $550 trillions in ETF holdings starting in January. If accompanied by multiple additional rate hikes, we could see an acceleration in bond sales and a more aggressive unwinding of the carry trade, with sustained consequences for risk assets.

Uncertainty reigns, but the data is clear: when global monetary policy diverges and liquidity contracts, Bitcoin usually bears the brunt.